Investment Market Share Still a Struggle for CUs

Credit union-affiliated households hold one-half of all personal financial assets in the U.S., and the industry has a reputation for being a trusted financial services provider.

With those advantages, one would think investment market share has increased for credit unions.

It hasn’t.

Market share has actually dropped, as the total number of credit unions offering investment services continued to shrink in 2012, according to the 2012-2013 Credit Union Investment Services Benchmarking Study, conducted by management consultant firm Kehrer Saltzman & Associates in Charlotte, N.C.

From 2008 to 2012, the number of credit unions selling investments and insurance declined by 12%, which mirrors the 12.7% decrease in the total number of credit unions nationwide.

For the $1 billion Eli Lilly Federal Credit Union in Indianapolis, awareness has been one of the biggest challenges in offering members investment services, said Matthew Snively, senior vice president of ELFCU Wealth Management and LPL Financial investment program manager. The credit union partnered with LPL Financial in 2009 to offer fee-based investment advisory services.

“We are doing business with less than 3% of our membership, yet we are 40% as large as ELFCU by assets,” Snively said. “If we could increase member penetration to 10%, we could actually eclipse the size of ELFCU.”

The KSA annual study of credit union securities brokerages monitored trends in the sale of investments and life insurance, and identified best industry practices. The analysis drew data from third-party broker dealers that providing information on 782 credit unions offering investment services. Kehrer Saltzman also said it surveyed 45 credit unions to obtain detailed data on the revenue, expenses and structure of their investment services businesses.

Member penetration was among the four metrics studied. The average credit union surveyed had established just 2.7% market share, while the top quartile averaged 3.6%.

“I knew we were low (at 2.7%), but I was surprised that we were in line with the average of the other credit unions who participated in the study,” Snively said. “Even the top quartile was under 5%. Credit union investment programs have a substantial opportunity based on this data.”

Kenneth Kehrer, a principal of Kehrer Saltzman, said credit unions that employed financial advisers, rather than relying on third-party firms, had better member penetration. Dual employee programs bested those with a managed program by 30%.

“Some would argue that when an adviser works for the credit union, they’re considered more a part of the team, and there’s more skin in the game,” Kehrer said. “In the case of dual employees, the credit union makes revenue, pays the adviser and the third party keeps a share. With a managed program, you get all the revenue. You may not make money but you won’t lose money.”

Household revenue penetration was another metric KSA studied. The firm said it is a more meaningful penetration measurement because it looks at the member’s economic unit and shows how much investment services are being used. Credit unions averaged $20.66 in annual investment services revenue per member household; the top quartile averaged $23.30.

Next Page: Awareness a Challenge

Like ELFCU, the $1.8 billion CommunityAmerica Credit Union in Lenexa, Kan., said awareness is a continual challenge. Members should be aware of the availability of investment services, but more importantly, they should also understand the long-term value it can bring to their lives, said Michael Haggerty, vice president of financial planning services. Community America partners with CUSO Financial Services LP, a San Diego-based broker-dealer and investment advisory firm.

“Despite our success with six, and on pace for seven consecutive record production years, and on pace to increase (gross dealer concessions) close to 500% over that time, there is still a significant opportunity to educate our members so more can benefit from the breadth of services we provide,” Haggerty said. “That is rewarding for members, the credit union and, of course, our advisers.”

The KSA data showed credit union financial advisers averaged $349,918 in annual gross revenue. That was 13% short of the $400,256 average among banks surveyed by the Bank Insurance and Securities Association in 2012. Still, one quarter of the study’s participants actually beat the bank’s average at $407,205. Likewise, financial advisers at credit unions with investment service programs that were more than 15 years old produced 66% more fee revenue from advisory business.

“Credit unions may be shy about how well they do because of the publicity from big banks like Wells Fargo, where they have 400,000 clients per adviser. The average credit union in the study has 350,” Kehrer said. “They may say ‘gee, we’re really not doing well.’ But when you compare (credit unions) to banks of similar size, they are performing well; they’re doing better.”

Snively said ELFCU’s investment service program’s success comes from several factors, first among them a staff of six financial advisers and two registered sales assistants that include Bruce Evans, the program’s first financial adviser who has served members for 17 years.

In 2006, the program identified fee-based investment advisory as a primary need for its members and established it as a main strategic imperative. President/CEO Lisa Schlenhuber has been the program’s biggest champion, making a strong case for it before the board and senior management.

Today, ELFCU Wealth Management has $400 million total assets under management.

CommunityAmerica CU, another KSA study participant, has managed a dual employee program with CUSO Financial since 2002, Haggerty said. Since then, it has amassed $453 million in assets under management.

Credit union integration and being viewed as a core product offering has been critical for investment services, he said. Buy-in throughout the organization, from the CEO to branch staff is also important. CommunityAmerica includes investment performance in its core metrics, demonstrating long-term commitment.